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Weather Forecast

Refineries scale back as storm moves in; oil falls

The biggest refineries in the Northeast shut down or throttled back on Monday in advance of Hurricane Sandy, and oil prices fell sharply as it appeared the massive storm will reduce demand.

Phillips 66 shut down its Linden, N.J. refinery, the second-biggest in the Northeast at 285,000 barrels per day. The biggest refinery in the area, Philadelphia Energy Solutions, was nearly shut. Most other big refineries in the Northeast were running at reduced capacity.

Sandy is powerful enough to down trees and powerlines and cause widespread flooding. Businesses could also be shut for days. If so, demand for gasoline and other oil products would drop sharply.

The power outages and the shutdown of major cities “may take a toll on demand unlike anything we have seen before,” wrote Phil Flynn, a senior market analyst for Price Futures Group, in a report on Monday. “The impact on demand may not last for hours but more than likely for days,” he wrote.

Tom Kloza, chief oil analyst at Oil Price Information Services, said he expects the drop in demand for oil and refined products “will be about as significant as we've seen since Katrina made landfall” in 2005.

Crude oil prices fell $1, or 1.1 percent, to $85.32 a barrel in trading on the New York Mercantile Exchange. The Nymex was closed on Monday because of the storm and evacuation in New York, but electronic trading continued.

Gasoline futures rose just 1 cent to $2.65. But they could shoot higher if refinery damage or long-term shutdowns cause gasoline shortages. Analysts say it's still too early to predict just what the storm's impact would be.

At the Philadelphia Energy Solutions refinery, which has a capacity of 330,000 barrels of oil a day, some units are running only at “minimum safe operating levels,” according to spokeswoman Cherice Corley.

Almost every other big refinery in the Northeast said it was operating at reduced capacity or in the process of shutting down. But Delta Air Lines Inc. would not say whether its newly-bought refinery in Trainer, Pa. was running or shutting down.

Nationally, gasoline prices at the pump fell a half-penny from Sunday, to $3.453 per gallon, according to AAA.